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Goizueta Business School

Emory University

Bus 724 Behavioral Finance (Advanced Topics in Finance) Fall 2016

Tuesday 9:00-12:00, Room W521

Professor T. Clifton Green

GBS 503, 404-727-5167

Email: [email protected]

Overview of the Course

Behavioral finance is often presented as a challenge to rational decision making and market

efficiency. Borrowing from the literature on market efficiency, we can group departures from

rational behavior into three familiar categories (weak, semi-strong, and strong). In the weak-

form, psychological biases affect investing behavior and can influence welfare but have no

lasting impact on asset prices. In the semi-strong form, behavioral biases also have an effect on

corporate managers but any suboptimal behavior is recognized by the market and incorporated

into security prices. Finally, in the strong form behavioral biases are so pervasive that they can

lead asset prices to depart nontrivially from fundamental values.

This half-semester course is designed to provide students with exposure to behavioral finance.

We’ll begin with an overview of behavioral biases documented in the cognitive psychology

literature and then discuss their implications for finance.

Readings

Many of the books on behavioral finance are collections of journal articles. We’ll focus on the

articles themselves with references to some of the helpful literature surveys. Two books I

recommend are Thinking Fast and Slow by Daniel Kahneman and The Myth of the Rational

Market by Justin Fox.

Grading

Grading is based on a combination of in class presentations and referee reports.

Office Hours

You can stop by any time. If you want to make sure that I’m free, send me an email first.

mailto:[email protected]

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Schedule

Session Date Topic Presentations

1 10/18 Overview of Behavioral Biases

2 10/25 Investor Behavior – Portfolio Construction, Home Bias, Trading

Presentations: 1, 2, 3, 4

3 11/1 Investor Behavior – Attention and Weather


4 11/8 Corporate Finance / Limits to Arbitrage – Theory and Empirical


5 11/15 Behavioral Models – Prospect Theory and Overconfidence


6 11/22 Tests of Behavioral Models – Prospect Theory,

Sentiment, and Comovement


7 11/29 Tests of Behavioral Models – Misreaction, Attention, and Lotteries


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Readings

Overview

Surveys

Baker, Malcolm, and Jeffrey Wurgler, 2013, Behavioral corporate finance: An updated

survey, Handbook of Economics and Finance, vol. 2, pp 357-424.

Barberis, Nicholas, and Richard Thaler, 2003, A survey of behavioral finance, in Handbook

of the Economics of Finance, G. Constantinides, M. Harris, and R. Stulz (ed.), North-

Holland, Amsterdam.

Daniel, Kent D. and Kent L. Womack, 2001, Behavioral finance, book chapter published in

Handbook of Modern Finance, edited by Dennis E. Logue and James K. Seward, Warren

Gorham & Lamong, Section B1, 1-30.

DellaVigna, Stefano, 2009, Psychology and economics: Evidence from the field, Journal of

Economic Literature.

Hirshleifer, David, 2001, Investor psychology and asset pricing, Journal of Finance.

Kahneman, D., 2003, Maps of bounded rationality: Psychology for behavioral economics,

American Economic Review.

Hirshleifer, David, Behavioral finance, 2015, Annual Review of Financial Economics.

Hirshleifer, David, and Siew Hong Teoh, 2009, Thought and behavior contagion in capital

markets, Chapter 1 in Handbook of Financial Markets: Dynamics and Evolution, Handbooks

in Finance series, Elsevier/North-Holland (2009):1-56.

Shefrin, Hersh, 2009, Behavioralizing finance, in Foundations and Trends in Finance, Vol.

4: 1–184.

Subrahmanyam, Avanidhar, 2007, Behavioural finance: A review and synthesis, European

Financial Management.

Commentaries

Debondt, Werner F.M., 1998, Behavioral economics: A portrait of the individual investor,

European Economic Review.

Fama, Eugene F., 1998, Market efficiency, long-term returns, and behavioral finance,

Journal of Financial Economics.

Kahneman, D., 2003, A psychological perspective on economics, American Economic

Review.

Malkiel, Burton G., 2003, The efficient market hypothesis and its critics, Journal of

Economic Perspective.

Shiller, Robert J., 2003, From efficient markets theory to behavioral finance, Journal of

Economic Perspective.

Thaler, Richard H., 2000, From homo economicus to homo sapiens Journal of Economic

Perspectives.

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Investor Behavior

Portfolio Construction

Andersen, Steffen, and Kasper Meisner Nielsen, 2010, Participation constraints in the stock

market: Evidence from unexpected inheritance due to sudden death, Review of Financial

Studies.

Barber, Brad, Xing Huang, Terrance Odean, 2016, Which Factors Matter to Investors?

Evidence from Mutual Fund Flows, Review of Financial Studies.

Barnea, Amir, Henrik Cronqvist, and Stephen Siegel, 2010, Nature or nurture: What

determines investor behavior, Journal of Financial Economics.

Benartzi, S. and Thaler, R., 2001, Naive diversification strategies in defined contribution

savings plans American Economic Review.

Benartzi, S. and Thaler, R., 2007, Heuristics and biases in retirement savings behavior,

Journal of Economic Perspectives.

Benartzi, S. and Thaler, R., 2001, Excessive extrapolation and the allocation of 401(k)

accounts to company stock, Journal of Finance.

Benartzi, S. and Thaler, R., 2002, How much is investor autonomy worth? Journal of

Finance.

Beshears, John, James Choi, David Laibson, Brigitte Madrian, and Katherine Milman, 2015,

The effect of providing peer information on retirement savings decisions, Journal of Finance.

Calvet, Laurent, John Campbell, and Paolo Sodini, 2009, Fight or flight? Portfolio

rebalancing by individual investors, Quarterly Journal of Economics.

Cole, Shawn, Anna Paulson, and Gauri Kartini Shastry, 2014, Smart money? The effect of

education on financial outcomes, Review of Financial Studies.

Cronqvist, Henrik, Alessandro Previtero, Stephan Siegel, Roderick E. White, 2015, The Fetal

Origins Hypothesis in Finance: Prenatal Environment, the Gender Gap, and Investor

Behavior, Review of Financial Studies.

D’Acunto, Francesco, 2015, Identity, Overconfidence, and Investment Decisions, Working

Paper, Maryland.

(1) Dimmock, Stephen, Roy Kouwenberg, Olivia Mitchell, and Kim Peijnenburg, 2016,

Ambiguity aversion and household portfolio choice puzzles: Empirical evidence Journal of

Financial Economics.

von Gaudecker, Hans-Martin, 2015, How does household portfolio diversification vary with

financial literacy and financial advice? Journal of Finance.

(2) Giannetti, Mariassunta, and Tracy Yue Wang, 2015, Corporate scandals and household

stock market participation, Journal of Finance.

Hong, Harrison, and Leonard Kostovetsky, , Red and blue investing: Values and finance.


Kaustia, Markku, and Samuli Knupfer, 2012, Peer performance and stock market entry,


Kaustia, Markku, and Sami Torstila, 2011, Stock market aversion? Political preferences and

stock market participation, Journal of Financial Economics.

Keloharju, Matti, Samuli Knupfer, and Juhani Linnainmaa, 2012, Do investors buy what they

know? Product market choices and investment decisions, Review of Financial Studies.

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Korniotis, George M., and Alok Kumar, 2011, Do behavioral biases adversely affect the

macro-economy, Review of Financial Studies.

Malmendier, Ulrike, and Stefan Nagel, 2011, Depression babies: Do macroeconomic

experiences affect risk-taking, Quarterly Journal of Economics.

Rosen, Harvey S., and Stephen Wu, 2004, Portfolio choice and health status, Journal of


Thaler, Richard H., and Shlomo Benartzi, 2004, Save more tomorrow: Using behavioral

economics to increase employee savings, Journal of Political Economy.

Home Bias

(3) Bernille, Gennaro, Alok Kumar, and Johan Sulaeman, 2015, Home away from Home:

Geography of Information and Local Investors, Review of Financial Studies.

Cornaggia, Jess, Kimberly Cornaggia, and Ryan Israelsen, 2016, Where the Heart Is:

Information Production and the Home Bias, Working Paper, Penn State

Coval, Joshua C. and T. Moskowitz, 1999, Home bias at home: Local equity preference in

domestic portfolios, Journal of Finance.

Coval, J., and T. Moskowitz (2001), The geography of investment: informed trading and

asset prices, Journal of Political Economy.

Doskeland, Trond, and Hans K. Hvide, 2011, Do individual investors have asymmetric

information based on work experience? Journal of Finance.

French, K., and J. Poterba, 1991, Investor diversification and international equity markets,

American Economic Review.

Grinblatt, M., and M. Keloharju (2001), How distance, language, and culture influence

stockholdings and trades, Journal of Finance.

Hong, Harrison, Jeffrey Kubik, and Jeremey Stein, 2008, The only game in town: Stock-price

consequences of local bias. Journal of Financial Economics.

Huberman, G. (2001), Familiarity breeds investment, Review of Financial Studies.

Ivkovic, Zoran, and Scott Weisbenner, 2005, Local does local is: information content of the

geography of individual investors’ common stock investments, Journal of Finance.

Kang, J. and R. Stulz, 1997, Why is there a home bias? An analysis of foreign portfolio

equity ownership in Japan, Journal of Financial Economics.

Pool, Veronika, Noah Stoffman, and Scott Yonker, 2012, No place like home: Familiarity in

mutual fund manager portfolio choice, Review of Financial Studies.

Pool, Veronika, Noah Stoffman, and Scott Yonker, 2015, The people in your neighborhood:

Social interactions and mutual fund portfolios, Journal of Finance.

Seasholes, Mark, and Ning Zhu, 2010, Individual investors and local bias, Journal of

Finance.

Trading

Bailey, Warren, Alok Kumar, and David Ng, 2011, Behavioral biases of mutual fund

investors, Journal of Financial Economics.

Barber, Brad, Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean, 2009, Just how much do

individual investors lose by trading? Review of Financial Studies.

Barber, Brad M., and Terrance Odean, 2000, Trading is hazardous to your wealth: The

common stock investment performance of individual investors, Journal of Finance.

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Barber, B., and T. Odean (2001), Boys will be boys: gender, overconfidence, and common

stock investment, Quarterly Journal of Economics.

Barber, B., and T. Odean (2002a), Online investors: do the slow die first? Review of

Financial Studies.

Barber, Brad, Terrance Odean, and Ning Zhu, 2009, Do retail trades move markets? Review

of Financial Studies.

Ben-David, Itzhak, and David Hirshleifer, 2012, Are investors really reluctant to realize their

losses? Trading responses to past returns and the disposition effect, Review of Financial

Studies.

(4) Birru, Justin, 2015, Confusion of Confusions: A Test of the Disposition Effect and

Momentum, Review of Financial Studies.

Cici, Gjergji, 2012, The prevalence of the disposition effect in mutual fund’s trades, Journal

of Financial Quantitative Analysis.

Chang, Tom, David H. Solomon, and Mark M. Westerfield, 2016, Looking for someone to

blame: Delegation, cognitive dissonance, and the disposition Effect, Journal of Finance.

Cronqvist, Henrik, and Stephan Siegel, 2014, The genetics of investment biases, Journal of


DeVault, Luke, Richard Sias, and Laura Starks, 2015, Who are the sentiment traders?

Evidence from the cross-section of stock returns and demand, Working Paper, Arizona.

Dorn, Daniel, and Paul Sengmueller, 2009 Trading as entertainment, Management Science.

Coval, Joshua D., and Tyler Shumway, 2001, Is sound just noise? Journal of Finance.

Coval, Joshua D., and Tyler Shumway, 2005, Do behavioral biases affect prices? Journal of

Finance.

(4) Hartzmark, Samuel, 2015, The worst, the best, ignoring all the rest: The rank effect and

trading behavior, Review of Financial Studies.

Grinblatt, M., and M. Keloharju, 2001, What makes investors trade? Journal of Finance.

Grinblatt, Mark, and Matti Keloharju, 2009, Sensation seeking, overconfidence, and trading

activity, Journal of Finance.

Grinblatt, Mark, Matti Keloharju, and Juhani T. Linnainmaa, 2012, IQ, Trading behavior,

and performance, Journal of Financial Economics.

Heath, Chip, Steven Huddart, and Mark Lang, 1999, Psychological factors and option

exercise, Quarterly Journal of Economics.

Heimler, Rawley, 2016, Peer pressure: Social interaction and the disposition effect, RFS.

Hvide, Hans, and Per Ostberg, 2015, Social Interaction at work, Journal of Financial

Economics.

Jin, Li, and Anna Scherbina, 2011, Inheriting Losers, Review of Financial Studies.

Kelley, Eric, and Paul Tetlock, 2013, “How Wise Are Crowds? Insights from Retail Orders

and Stock Returns, Journal of Finance.

Kumar, Alok, 2008, How do decision frames influence the stock investment choices of

individual investors, Management Science.

Kuo, Wie-Yu, Tse-Chun Lin, and Jing Zhao, 2014, Cognitive limitation and investment

performance: Evidence from limit order clustering, Review of Financial Studies.

Linnainmaa, Juhani T., 2011, Why do (some) households trade so much? Review of

Financial Studies.

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Locke, Peter R., and Steven C. Mann, 2005, Professional trader discipline and trade

disposition, Journal of Financial Economics.

Odean, Terrance, 1998, Are investors reluctant to realize their losses? Journal of Finance.

Odean, Terrance, 1998, Volume, volatility, price, and profit when all traders are above

average, Journal of Finance.

Poteshman, Allen M., and Vitaly Serbin, 2002, Clearly irrational financial behavior:

Evidence from the early exercise of exchange traded stock options, Journal of Finance.

Seru, Amit, Tyler Shumway, and Noah Stoffman, 2010, Learning by trading, Review of

Financial Studies.

Shefrin, H., and M. Statman (1985), The disposition to sell winners too early and ride losers

too long, Journal of Finance.

Statman, Meir, Steven Thorley, and Keith Vorkink, 2006, Investor overconfidence and

trading volume, Review of Financial Studies.

Attention

(5) Ahern, Kenneth R., and Denis Sosyura, 2015, Rumor has it: Sensationalism in financial

media, Review of Financial Studies.

Barber, Brad M., and Terrance Odean, 2008, All that glitters: The effect of attention and

news on the buying behavior of individual and institutional investors, Review of Financial

Studies.

Chen, Joseph, Harrison Hong, Jeremy C. Stein, 2002, Breadth of ownership and stock

returns, Journal of Financial Economics.

Da, Zhi, Joseph Engelberg, and Pengjie Gao, 2011, In search of attention, Journal of

Finance.

DellaVigna, Stefano, and Joshua Pollet, 2009, Investor inattention, firm reaction, and Friday

earnings announcements, Journal of Finance.

(5) Drake, Michael, Darren Roulstone, Jared Jennings, and Jacob Thornock, 2015, The

comovement of investor attention, Working Paper BYU.

Engelberg, Joseph E., and Christopher Parsons, 2011, The causal impact of media in

financial markets, Journal of Finance.

Green, T. Clifton, and Russell Jame, 2013, Company name fluency, investor recognition, and

firm value, Journal of Financial Economics.

Grullon, Gustavo, George Kanatas, and James P. Weston, Advertising, breadth of ownership,

and liquidity, Review of Financial Studies.

Gurun, Umit, and Alexander Butler, 2012, Don’t believe the hype: Local media slant, local,

advertising, and firm value, Journal of Finance.

McDevitt, Ryan C., 2014, “A” business by any other name: Firm name choice as a signal of

firm quality,” Journal of Political Economy.

(6) Schmidt, Daniel, 2015, Distracted Institutional Investors, Working Paper, HEC Paris

(6) Yuan, Yu, 2015, Market-wide attention, trading, and stock returns, Journal of Financial

Economics.

Weather / Mood

Chen, Jing, Elizabeth Demers, and Baruch Lev, 2013, Oh what a beautiful morning! The

time of day effect on the tone and market impact of conference calls, Working Paper, NYU.

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(7) Cortes, Kristle, Ran Duchin, and Denis Sosyura, 2016, Clouded Judgment: The Role of

Sentiment in Credit Origination, Journal of Financial Economics.

Goetzmann, William N., Dasol Kim, Alok Kumar, and Qin Wang, 2015, Weather-induced

mood, institutional investors, and stock returns, Review of Financial Studies.

(8) deHaan, Ed, Joshua Madsen, and Joseph Piotroski, 2015, Do Weather-Induced Moods

Affect the Processing of Earnings News?, Working paper, Stanford.

Hirshleifer, David and Tyler Shumway, 2003, Good day sunshine: stock returns and the

weather, Journal of Finance.

Kamstra, Mark, Lisa A. Kramer, and Maurice D. Levi, 2000, Losing sleep at the market: The

daylight saving anomaly, American Economic Review.

Kamstra, Mark, Lisa A. Kramer, and Maurice D. Levi, 2003, Winter blues: A SAD stock

market cycle, American Economic Review.

Kaplanski, Guy, and Haim Levy, 2010, Exploitable predictable irrationality: The FIFA world

cup effect on the U.S. stock market, Journal of Financial and Quantitative Analysis.

Saunders, Edward M, Jr. 1993, Stock prices and weather, American Economic Review.

Corporate Finance – Manager Behavior

Manager Response to Investor Biases

(9) Baker, Malcolm, Brock Mendel, and Jeffrey Wurgler, 2016, Dividends as Reference

Points: A Behavioral Signaling Approach, Review of Financial Studies.

Baker, Malcolm, and Jeffrey Wurgler, 2004, A catering theory of dividends, Journal of

Finance.

Baker, Malcolm, and Jeffrey Wurgler, 2004, Appearing and disappearing dividends: The link

to catering incentives, Journal of Financial Economics.

Baker, Malcom, Robin Greenwood, and Jeffrey Wurgler, 2009, Catering through nominal

share price, Journal of Finance.

Bakke, Tor-Erik, and Toni M. Whited, 2010, Which firms follow the market? An analysis of

corporate investment decisions, Review of Financial Studies.

Becker, Bo, Zoran Ivkovic, and Scott Weisbenner, 2011, Local dividend clienteles, Journal

of Finance.

Bergman, Nittai, and Dirk Jenter, 2007, Employee sentiment and stock option compensation,


(10) Bushee, Brian, and Henry Friedman, 2016 Disclosure Standards and the Sensitivity of

Returns to Mood, Review of Financial Studies.

Degeorge, Francois, Jayendu Patel, and Richard Zeckhauser, Earnings management to

exceed thresholds, Journal of Business.

Derrien, Francois, Ambrus Kecskes, and David Thesmar, 2013, Investor horizons and

corporate policies, Journal of Financial and Quantitative Analysis.

Dong, Ming, David Hirshleifer, and Siew Hong Teoh, 2012, Overvalued equity and

financing decisions, Review of Financial Studies.

Green, T. Clifton, Byoung-Hyun Hwang, and Cong Wang, 2014, CEO vs. consumer

confidence: Investment, financing, and firm performance, Working Paper, Emory.

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Jia, Yuping, Laurence van Lent, and Yachang Zeng, 2014, Masculinity, testosterone, and

financial misreporting, Journal of Accounting Research.

Lou, Dong, 2014, Attracting investor attention through advertising, Review of Financial

Studies.

McLean, R. David, and Mengxin Zhao, 2014, The business cycle, investor sentiment, and

costly external finance, Journal of Finance.

Rau, P. Raghavendra, and Aris Stouraitis, 2011, Patterns in the timing of corporate event

waves, Journal of Financial and Quantitative Analysis.

Shefrin, Hersh and Meir Statman, 1984, Explaining investor preference for cash dividends,


Manager Bias

Aktas, Nihat, Eric de Bodt, Helen Bollaert, and Richard Roll, 2016, CEO narcissism and the

takeover process, Journal of Financial and Quantitative Analysis.

Baker, Malcolm, Xin Pan, and Jeffrey Wurgler, 2012, The effect of reference point prices on

mergers and acquisitions, Journal of Financial Economics.

Ben-David, Itzhak, John R. Graham, and Campbell R. Harvey, 2013, Managerial

miscalibration, Quarterly Journal of Economics.

Benmelech, Efraim, and Carola Frydman, 2015, Military CEOs Journal of Financial

Economics.

Bernile, Gennaro, Vineet Bhagwat, and P. Raghavendra Rau, 2016, What doesn’t kill you

will only make you more risk-loving: Early-life disasters and CEO behavior. Journal of

Finance.

Blanchard, Olivier Jean, Florencio Lopez-de-Silanes, and Andrei Shleifer, 1994, What do

firms do with cash windfalls? Journal of Financial Economics.

Cain, Matthew, and Stephen McKeon, 2016, CEO Personal Risk-Taking and Corporate

Policies, Journal of Financial and Quantitative Analysis.

Campbell, T. Colin, Michael Gallmeyer, Shane A. Johnson, Jessica Rutherford, and Brooke

W. Stanley, CEO optimism and forced turnover, Journal of Financial Economics.

Chung, Kiseo, T. Clifton Green, and Breno Schmidt, 2016, CEO home bias and corporate

acquisitions, Working Paper, Emory.

Cronqvist, Henrik, Anil K. Makhija, and Scott E. Yonker, 2012, Behavioral consistency in

corporate finance: CEO personal and corporate leverage. Journal of Financial Economics.

Dittman, Ingolf, Ernst Maug, and Oliver Spalt, 2010, Sticks or carrots? Optimal CEO

compensation when managers are loss averse, Journal of Finance.

(11) Dittmar, Amy and Ran Duchin, 2016, Looking in the Rear View Mirror: The Effect of

Managers’ Professional Experience on Corporate Financial Policy, Review of Financial

Studies.

Galasso, Alberto, and Timothy Simcoe, 2011, CEO overconfidence and innovation,

Management Science.

Gervais, Simon, J.B. Heaton, and Terrance Odean, 2011, Overconfidence, compensation

contracts, and capital budgeting, Journal of Finance.

Goel, Anand, and Anjan Thakor, 2008, Overconfidence, CEO selection, and corporate

governance, Journal of Finance.

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(12) Gompers, Paul, Vladimir Mukharlyamov, and Yuhai Xuan, 2016, The cost of friendship,


Green, T. Clifton, Russell Jame, and Brandon Lock, 2016, It pays to be extraverted:

executive personality and career outcomes, Working Paper, Emory.

Heaton, J.B., 2002, Managerial optimism and corporate finance, Financial Management.

Hirshleifer, David, Angie Low, and Siew Hong Teoh, 2012, Are overconfident CEOs better

innovators? Journal of Finance.

Ho, Po-Hsin, Chia-Wei Huang, Chih-Yung Lin, and Ju-Fang Yen, 2016, CEO

Overconfidence and Financial Crisis: Evidence from Bank Lending and Leverage, Journal of


(12) Humphery-Jenner, Mark, Ling Lisic, Vik Nanda, and Sabatino Silveri, 2016, Executive

Overconfidence and Compensation Structure. Journal of Financial Economics.

Hutton, Irena, Danling Jiang, and Alok Kumar, 2014, Corporate Policies of Republican

Managers, Journal of Financial and Quantitative Analysis.

Landier, Augustin, and David Thesmar, 2009, Financial contracting with optimistic

entrepreneurs, Review of Financial Studies.

Larcker, David and Anastasia Zakolyukina, 2012, Detecting deceptive discussions in

conference calls, Journal of Accounting Research.

Malmendier, Ulrike, and Geoffrey Tate, 2005, CEO overconfidence and corporate

investment, Journal of Finance.

Malmendier, Ulrike, and Geoffrey Tate, 2008, Who makes acquisitions? CEO

overconfidence and the market’s reaction, Journal of Financial Economics.

Malmendier, Ulrike, Geoffrey Tate, and Jon Yan, 2011, Overconfidence and early-life

experiences: The effect of managerial traits on corporate financial policies Journal of

Finance.

Mayew, William J., and Mohan Venkatachalam, 2012, The power of voice: Managerial

affective states and future firm performance, Journal of Finance.

Otto, Clemens, 2014, CEO optimism and incentive compensation, Journal of Financial

Economics.

Roussanov, Nikolai, and Pavel Savor, 2014, Marriage and Managers’ Attitudes to Risk,

Management Science.

Schneider, Christoph, and Oliver Spalt, 2016, Conglomerate Investment, Skewness, and the

CEO Long Shot Bias, Journal of Finance.

Sen, Rik and Robert Tumarkin, 2015, Stocking up: Executive optimism, option exercise, and

share retention, Journal of Financial Economics.

Roll, Richard, 1986, The hubris hypothesis of corporate takeovers, Journal of Business.

Limits of Arbitrage – Theory

Abreu, Dilip, and Markus K. Brunnermeier, 2002, Synchronization risk and delayed

arbitrage, Journal of Financial Economics.

DeLong, Bradford, Andrei Shleifer, Lawrence Summers, and Robert Waldman, 1991, The

survival of noise traders in financial markets, Journal of Business.

DeLong, Bradford, Andrei Shleifer, Lawrence Summers, and Robert Waldman, 1990, Noise

trader risk in financial markets, Journal of Political Economy.

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Hirshleifer, David, Avanidhar Subrahmanyam, and Sheridan Titman, 2006, Feedback and the

success of irrational investors, Journal of Financial Economics.

Hombert, Johan, and David Thesmar, 2014, Overcoming limits of arbitrage: Theory and

evidence, Journal of Financial Economics.

Liu, Jun, and Francis Longstaff, Losing money on arbitrage: Optimal dynamic portfolio

choice in markets with arbitrage opportunities, Review of Financial Studies.

Shleifer, Andrei, and Robert Vishny, 1997, The limits of arbitrage, Journal of Finance.

Limits of Arbitrage – Empirical

Ali, Ashiq, Lee-Seok Hwang, and Mark A. Trombley, 2003, Arbitrage risk and the book-to-

market anomaly, Journal of Financial Economics.

Baker, Malcolm and Serkan Sava-soglu, 2002, Limited arbitrage in mergers and acquisitions,


Froot, Kenneth A., and Emil M. Dabora, 1999, How are stock prices affected by the location

of trade? Journal of Financial Economics.

Gagnon, Louis, and G. Andrew Karolyi, 2010, Multi-market trading and arbitrage, Journal of


Hanson, Samuel G., and Adi Sunderam, 2014, The growth and limits of arbitrage: Evidence

from short interest, Review of Financial Studies.

Lamont, Owen A., and Richard H. Thaler (2004), Can the market add and subtract?

Mispricing in tech stock carve-outs, Journal of Political Economy.

Ljungqvist, Alexander, and Wenlan Qian, 2016, How constraining are limits to arbitrage,

Review of Financial Studies.

Mitchell, M., T. Pulvino and E. Stafford (2002), Limited arbitrage in equity markets, Journal

of Finance.

Oberlechner, Thomas, and Carol Osler, 2012, Survival of Overconfidence in currency

markets, Journal of Financial and Quantitative Analysis.

Ofek, Eli and Matthew Richardson, 2003, DotCom mania: The rise and fall of Internet

stocks, Journal of Finance.

Ofek, Eli, Matthew Richardson, and Robert F. Whitelaw, 2004, Limited arbitrage and short

sales restrictions: Evidence from the options markets, Journal of Financial Economics.

Pontiff, Jeffrey, 2006, Costly arbitrage and the myth of idiosyncratic risk, Journal of

Accounting and Economics.

Behavioral Models

Prospect Theory

Barberis, Nicholas, 2012, A model of casino Gambling, Management Science.

Barberis, Nicholas, and Ming Huang (2001), Mental accounting, loss aversion and individual

stock returns, Journal of Finance.

Barberis, Nicholas, Ming Huang, and Tano Santos, 2001, Prospect theory and asset prices,

Quarterly Journal of Economics.

Barberis, Nicholas, and Wei Xiong, 2009, What drives the disposition effect? An analysis of

a long-standing preference-based explanation, Journal of Finance.

12

Henderson, Vicky, 2012, Prospect theory, liquidation, and the disposition effect,

Management Science.

Li, Yan, and Liyan Yang, 2013, Prospect theory, the disposition effect, and asset prices,


Kahneman, Daniel, and Amos Tversky, 1979, Prospect theory: An analysis of decision under

risk, Econometrica.

Kaustia, Markku, 2010, Prospect theory and the disposition effect, Journal of Financial and

Quantitative Analysis.

Levy Haim, and Moshe Levy, 2004, Prospect theory and mean-variance analysis, Review of

Financial Studies.

Sentiment

Baker, Malcolm, and Jeremy Stein, 2004, Market liquidity as a sentiment indicator, Journal

of Financial Markets.

Barberis, Nicholas, Angrei Shleifer, and Robert Vishny, 1998, A model of investor

sentiment, Journal of Financial Economics.

(13) Benhabib, Jess, Xuewen Liu, and Pengfei Wang, 2016, Sentiments, financial markets,

and macroeconomic fluctuations, Journal of Financial Economics.

Hong, Harrison, and David Sraer, 2013, Quiet bubbles, Journal of Financial Economics.

Mendel, Brock, and Andrei Shleifer, 2012, Chasing noise, Journal of Financial Economics.

Overconfidence

Daniel, Kent, David Hirshleifer, and A. Subrahmanyam, 2001, Overconfidence, arbitrage,

and equilibrium asset pricing, Journal of Finance.

Daniel, Kent, David Hirshleifer, and A. Subrahmanyam, 1998, Investor psychology and

security market under- and overreactions, Journal of Finance.

Gervais, Simon, and Terrence Odean, 2001, Learning to be overconfident, Review of

Financial Studies.

Hong, Harrison and Jeremy C. Stein, 1999, A unified theory of underreaction, momentum

trading and overreaction in asset markets, Journal of Finance.

Ko, K. Jeremy, and Zhijian Huang, 2007, Arrogance can be a virtue: Overconfidence,

information acquisition, and market efficiency, Journal of Financial Economics.

Kogan, Shimon, 2009, Distinguishing the effect of overconfidence from rational best-

response on information aggregation, Review of Financial Studies.

Lazear, Edward, 2016, Overconfidence and Occupational Choice, Working Paper, Stanford.

Peng, Lin, and Wei Xiong, 2006, Investor attention, overconfidence and category learning,


Scheinkman, Jose, and Wei Xiong, 2003, Overconfidence and speculative bubbles, Journal

of Political Economy.

Van den Steen, Eric, 2011, Overconfidence by Bayesian-rational agents, Management

Science.

Other

13

Andrei, Daniel, and Michael Hasler, 2015, Investor attention and stock market volatility.


Aydoğan Altı and Paul C. Tetlock, 2014, Biased beliefs, asset prices, and investment: A

structural approach, Journal of Finance.

(14) Baker, Stephen, Burton Hollifield, and Emilio Osambela, 2016, Disagreement,

Speculation, and Aggregate Investment, Journal of Financial Economics.

(15) Barberis, Nicholas, Robin Greenwood, Lawrence Jin, and Adrei Shleifer, 2016,

Extrapolation and bubbles, Working paper, Yale.

Barberis, Nicholas, Robin Greenwood, Lawrence Jin, and Adrei Shleifer, 2015, X-CAPM:

An extrapolative capital asset pricing model, Journal of Financial Economics.

Barberis, Nicholas, and Wei Xiong, 2012, Realization Utility, Journal of Financial

Economics.

Barberis, Nicholas, Ming Huang, and Richard H. Thaler, 2006, Individual preferences,

monetary gambles, and stock market participation: A case for narrow framing, American

Economic Review.

Barberis, Nichole and Andrei Shleifer (2003), Style investing, Journal of Financial

Economics.

Das, Sanjiv, Harry Markowitz, Jonathan Scheid, and Meir Statman, 2010, Portfolio

optimization with mental accounts, Journal of Financial and Quantitative Analysis.

Gennaioli, Nicola, Andrei Shleifer, and Roberty Vishny, 2015, Money Doctors, Journal of

Finance.

Hong, Harrison, Wenxi Jiang, Na Wang, and Bin Zhao, 2014, Trading for status, Review of

Financial Studies.

Ingersoll, Jonathan E., and Lawrence J. Jin, 2013, Realization utility with reference-

dependent preferences, Review of Financial Studies.

Routledge, Bryan R., and Stanley E. Zin, 2010, Generalized disappointment aversion and

asset prices. Journal of Finance.

Statman, Meir, Kenneth Fisher, and Deniz Anginer, 2008, Affect in a behavioral asset pricing

model, Financial Analysts’ Journal.

Tests of Behavioral Models

Prospect Theory

(17) Barberis, Nicholas, Abhiroop Mukherjee, Baolian Wang, 2016, Prospect Theory and

Stock Returns: An Empirical Test, Review of Financial Studies, forthcoming.

Grinblatt, Mark, and Bing Han, 2005, Prospect Theory, Mental accounting, and momentum,


Ljunqvist, Alexander and William Wilhelm, 2005, Does prospect theory explain IPO market

behavior? Journal of Finance.

Pope, Devin G., and Maurice E. Schweitzer, 2012, Is Tiger Woods loss averse? Persistent

bias in the face of experience, competition, and high stakes, American Economic Review.

(18) Bodnaruk, Andriy, and Andrei Simonov, 2016, Loss Averse Preferences, Performance,

and Career Success of Institutional Investors, Working Paper, Illinois Chicago.

Sentiment

14

(18) Antoniou, Constantinos, John A. Doukas, and Avanidhar Subrahmanyam, 2016,

Investor sentiment, beta, and the cost of equity capital. Management Science.

Baker, Malcolm, and Jeffrey Wurgler, 2006, Investor sentiment and the cross-section of


Baker, Malcolm, Jeffrey Wurgler, and Yu Yuan, 2012, Global, local, and contagious investor

sentiment, Journal of Financial Economics.

Barone-Adesi, Giovani, Loriano Mancini, and Hersh Shefrin, 2016, Sentiment, risk aversion,

and time preference, Working Paper, Swiss Finance Institute.

Ben-Raphael, Azi, Shmuel Kandel, and Avi Wohl, 2012, Measuring investor sentiment with

mutual fund flows, Journal of Financial Economics.

Bodurtha, James N. Jr., Dong-Soon Kim, and Charles M.C. Lee, 1995, Closed-end country

funds and U.S. market sentiment, Review of Financial Studies.

Da, Zhi, Joseph Engelberg, and Penjie Gao, 2015, The Sum of All FEARS Investor

Sentiment and Asset Prices, Review of Financial Studies.

Frehen, Rik G.P., William N. Goetzmann, and K. Geert Rouwenhorst, 2013, New evidence

on the first financial bubble. Journal of Financial Economics.

(19) Garcia, Diego, 2013, Sentiment during recessions, Journal of Finance.

Han, Bing, 2008, Investor sentiment and option prices, Review of Financial Studies.

(19) Huang, Dashan, Fuwei Jiang, Jun Tu, and Guofu Zhou, 2016, Investor sentiment

aligned: A powerful predictor of stock returns, Review of Financial Studies.

Hwang, Byoung-Hyoun, 2011, Country-specific sentiment and security prices, Journal of


Kaplanski, Guy, and Haim Levy, 2010, Sentiment and stock prices: The case of aviation

disasters, Journal of Financial Economics.

Lee, Charles M.C., Andrei Shleifer, and Richard Thaler, 1991, Investor sentiment and the

closed-end fund puzzle, Journal of Finance.

Lemmon, Michael, and Evgenia Portniaguina, 2006, Consumer confidence and asset prices:

Some empirical evidence, Review of Financial Studies.

Novy-Marx, Robert, 2014, Predicting anomaly performance with politics, the weather, global

warming, sunspots, and the stars, Journal of Financial Economics.

Puri, Manju, and David Robinson, 2007, Optimism and economic choice, Journal of


Stambaugh, Robert F., Jianfeng Yu, and Yu Yuan, 2014, The long of it: Odds that investor

sentiment spuriously predicts anomaly returns, Journal of Financial Economics.

Stambaugh, Robert F., Jianfeng Yu, and Yu Yuan, 2012, The short of it: Investor sentiment

and anomalies, Journal of Financial Economics.

Tetlock, Paul, 2007, Giving content to investor sentiment: The role of media in the stock

market, Journal of Finance.

Yu, Jianfeng, and Yu Yuan, 2011, Investor sentiment and the mean-variance relation,


Comovement

Barberis, Nicholas, Andrei Shleifer, and Jeffrey Wurgler, 2005, Comovement, Journal of


Boyer, Brian, 2011, Style-related comovement: Fundamentals or labels? Journal of Finance.

15

Chen, Honghui, Vijay Singal, and Robert Whitelaw, 2016, Comovement Revisited, Journal

of Financial Economics.

Dorn, Daniel, Gur Huberman, and Paul Sengmueller, 2008, Correlated trading and returns,

Journal of Finance.

Green, T. Clifton and Byoung-Hyoun Hwang, 2009, Price-based return comovement,

Journal of Financial Economics,

Greenwood, Robin, 2005, Short- and long-term demand curves for stocks: Theory and

evidence on the dynamics of arbitrage, Journal of Financial Economics.

Kuhnen, Camelia, 2015, Asymmetric Learning from Financial Information, Journal of

Finance.

Kumar, Alok and Charles Lee, 2006, Retail investor sentiment and return comovements,

Journal of Finance.

Pirinsky, Christo, and Qinghai Wang, 2006, Does corporate headquarters location matter for


Wurgler, Jeffrey, and Ekaterina Zhuravskaya, 2002, Does arbitrage flatten demand curves for

stocks, Journal of Business.

Misreaction

Chan, Wesley S, Richard Frankel, S.P. Kothari, 2004, Testing behavioral finance theories

using trends and consistency in financial performance, Journal of Accounting and

Economics.

(20) Chang, Tom, Samuel Hartzmark, David Solomon, and Eugene Soltes, 2016, Being

Surprised by the Unsurprising: Earnings Seasonality and Stock Returns, Working Paper,

USC

Chui, Andy, Sheridan Titman, and K.C. John Wei, 2010, Individualism and momentum

around the world, Journal of Finance.

Da, Zhi, Umit G. Gurun, and Mitch Warachka, 2014, Frog in the pan: Continuous

information and momentum, Review of Financial Studies.

De Bondt, Werner, and Richard Thaler, 1985, Does the stock market overreact, Journal of

Finance.

De Bondt, Werner, and Richard Thaler, 1987, Further evidence on investor overreaction and

stock market seasonality, Journal of Finance.

Hillert, Alexander, Heiko Jacobs, and Sebastian Muller, 2014, Media makes momentum,


Kadiyala, Padmaja, and P. Raghavendra Rau, 2004, Investor reaction to corporate event

announcements: underreaction or overreaction? Journal of Business.

Lee, Bong-Soo, 2006, An empirical evaluation of behavioral models based on

decompositions of stock prices, Journal of Business.

Poteshman, Allen M., 2001, Underreaction, overreaction, and increasing misreaction to

information in the options market, Journal of Finance.

Tetlock, Paul, 2011, All the news that’s fit to reprint: Do investors react to stale information?


Attention

16

Chen, Honghui, Gregory Noronha, and Vijay Singal, 2004, The price response to S&P 500

index additions and deletions: Evidence of asymmetry and a new explanation, Journal of

Finance.

DellaVigna, Stefano, and Joshua Pollet, 2007, Demographics and industry returns, American

Economic Review.

Giglio, Stefano, and Kelly Shue, 2014, No News is News: Do markets underreact to nothing?


Gilbert, Thomas, Shimon Kogan, Lars Lochstoer, and Ataman Ozyildirim, 2012. Investor

inattention and the market impact of summary statistics, Management Science.

Li, Jun, and Jianfeng Yu, 2012, Investor attention, psychological anchors, and stock return

predictability, Journal of Financial Economics.

Louis, Henock, and Amy Sun, 2010, Investor inattention and the market reaction to merger

announcements, Management Science.

Michaely, Roni, Amir Rubin, and Alexander Vedrashko, 2016, Are Friday Announcements

Special? Overcoming Selection Bias, Journal of Financial Economics.

Rashes, Michael S., 2001, Massively confused investors making conspicuously ignorant

choices (MCI-MCIC) Journal of Finance.

Sicherman, Nachum, George Loewenstein, Duane Seppi, and Stephen Utkus, 2015, Financial

attention, Review of Financial Studies, forthcoming

Savor, Pavel G., 2012, Stock returns after major price shocks: The impact of information,


Lotteries

(21) Amaya, Diego, Peter Christoffersen, Kris Jacobs, and Aurelio Vasquez, 2015, Does

Realized Skewness Predict the Cross-Section of Equity Returns? Journal of Financial

Economics.

Bakshi, Xiaohui Gao, and Tse-Chun Lin, 2014, Do Individual Investors Treat Trading as a

Fun and Exciting Gambling Activity? Evidence from Repeated Natural Experiments,

Bali, Turan, Nusret Cakici, and Robert Whitelaw, 2008, Maxing out: Stocks as lotteries and

the cross-section of expected returns, Journal of Financial Economics

Barberis, Nicholas, and Ming Huang, 2008, Stocks as lotteries: The implications of

probability weighting for security prices, American Economic Review.

Birru, Justin, and Baolin Wang, 2016, Nominal price illusion, Journal of Financial

Economics.

(21) Byun, Suk-Joon, and Da-Hea Kim, 2016, Gambling preference and individual equity

option returns, Journal of Financial Economics.

Conrad, Jennifer, Robert Dittmar, and Eric Ghysels, 2013, Ex ante skewness and expected


Conrad, Jennifer, Nishad Kapadia, and Yuhang Xing, 2014, Death and jackpot: Why do

individual investors hold overpriced stocks, Journal of Financial Economics.

(21) Eraker, Bjorn, and Mark Ready, 2015, Do Investors Overpay for Stocks with Lottery-

Like Payoffs? An Examination of the Returns on OTC Stocks, Journal of Financial

Economics.

17

*Gao, Xiaohui, and Tse-Chun Lin, 2015, Do Individual Investors Treat Trading as a Fun and

Exciting Gambling Activity? Evidence from Repeated Natural Experiments, Review of

Financial Studies.

Kumar, Alok 2009, Who gambles in the stock market? Journal of Finance.

Kumar, Alok, Jeremy Page, and Oliver Spalt, 2014, Gambling and Comovement, Journal of

Financial and Quantitative Analysis.

Kumar, Alok, Jeremy Page, and Oliver Spalt, 2011, Religious beliefs, Gambling attitudes,

and financial market outcomes, Journal of Financial Economics.

Dorn, Daniel, and Gur Huberman, 2010, Preferred risk habitat of individual investors,

Journal of Financial Economics

Green, T. Clifton and Byoung-Hyoun Hwang, 2012, IPOs as lotteries: Skewness preference

and first-day returns, Management Science.

Han, Bing, and Alok Kumar, 2013, Speculative retail trading and asset prices, Journal of

Financial and Quantitative Analysis.

Mitton, Todd, and Keith Vorkink, 2010, Why do firms with diversification discounts have

higher expected returns?, Journal of Financial and Quantitative Analysis,

Culture/Trust

Ahern, Kenneth R., Daniele Daminelli, and Cesare Fracassi, 2014, Lost in translation? The

effect of cultural values on mergers, Journal of Financial Economics.

Ahern, Kenneth R., Ran Duchin, and Tyler Shumway, 2014, Peer effects in risk aversion and

trust, Review of Financial Studies.

(22) Bhagwat, Vineet, and Xiaoding Liu, 2016, Too Much of a Good Thing: Trust and

Analyst Accuracy, Working Paper, Oregon.

(22) Bottazzi, Laura, Marco Da Rin, and Thomas Hellmann, 2016, The Importance of Trust

for Investment: Evidence from Venture Capital, Review of Financial Studies.

Chang, Yen-Cheng, Harrison Hong, Larissa Tiedens, and Bin Zhao, 2013, Does diversity

lead to diverse opinions? Evidence from languages and stock markets, Working paper,

Princeton University.

Davidson, Robert, Aiyesha Dey, and Abbie Smith, 2014, Executives “off-the-job” behavior,

corporate culture, and financial reporting risk, Journal of Financial Economics.

*Eun, Cheol, Lingling Wang, and Steven Chong Xiao, 2015, Culture and R2, Journal of


Guiso, Luigi, Paola Sapienza, and Luigi Zingales, 2014, The value of corporate culture,


(23) Kostovetsky, Leonard, 2016, Whom Do You Trust? Investor-Advisor Relationships and

Mutual Fund Flows, Review of Financial Studies.

(23) Liu, Xiaoding, 2015, Corruption Culture and Corporate Misconduct, Journal of

Financial Economics, forthcoming.

Pevzner, Mikhail, Fei Xie, and Xiangang Xin, 2015, When firms talk, do investors listen?

The role of trust in stock market reactions to corporate earnings announcements, Journal of


Popadak, Jillian, 2013, A corporate culture channel: How increased shareholder governance

reduces firm value, Working Paper, Duke.

18

Other

(24) Engelberg, Joseph, and Christopher Parsons, 2016, Worrying about the Stock Market:

Evidence from Hospital Admissions, Journal of Finance.

(24) Cohn, Jonathan, and Malcolm Wardlaw, 2016, Financing constraints and workplace

safety. Journal of Finance.

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